USD still vulnerable ahead of NFP report – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the US dollar continues to remain on the defensive ahead of the release today of the latest non-farm payrolls report.

Key Quotes

“The recent dovish shift in the Fed policy stance which has placed greater emphasis on downside risks to the outlook for growth and inflation is dampening potential support for the US dollar from the recent improvement in actual US economic data. The Fed’s new policy stance should limit the potential for the US dollar to derive support as well today from the latest non-farm report even if it reveals that the US labour market continues to improve.

We have been surprised by the strength of employment growth early this year following very robust job gains in the final quarter of last year. We would have expected greater payback weakness in Q1 which has not yet materialized suggesting that the underlying trend in employment growth remains firmer than we had expected.

Nonetheless even if employment growth remains solid in today’s report it is unlikely on its own to offer much support for the US dollar. The latest earnings figures will be more important for the outlook for Fed policy as highlighted in Fed Chair Yellen’s speech from earlier this week in which she stated that the Fed must continue to “monitor incoming wage and price data carefully”.

Earnings growth will have to rebound more strongly as well after weakness in last month’s report to offer more support for the US dollar. If there are any disappointing parts to the report, it will reinforce US dollar weakness in the near-term.”
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